What Will Happen to Vivendi's Goodies?

Buyers are at the door, but shareholders may not get great deals for the media giant's juicy assets

Jean-Marie Messier is gone, but the company he created lives on. For how long, though? That was the question preoccupying investment bankers and media executives on both sides of the Atlantic as Messier's reign at Vivendi Universal (V ) abruptly ended. It's a crucial issue for the industry.

Clearly, Vivendi needs an overhaul. Its market capitalization has fallen more than $70 billion since its transforming merger with Seagram Co. in 2000. If Messier's successor tries to follow his course and keep the unwieldy conglomerate together, the company will likely be dogged by the same investor fear and distrust that overwhelmed Messier.


  But putting Vivendi's assets on the block may not be feasible in current market conditions. Indeed, the company's fragility was underscored when shares plunged 25% on July 2, the day after Messier resigned, fueled by a debt downgrade and reports about Vivendi's accounting practices. "It is complete panic out there," says an investment banker close to the company.

Much will depend on Messier's successor. There are several candidates, but one stands out: Jean-René Fourtou, the vice-chairman of French-German pharmaceutical group Aventis. Fourtou couldn't be more different from Messier. The low-key, 63-year-old Fourtou has never squired a starlet to a Hollywood screening and probably thinks Eminem is a candy. But he's well-respected by President Jacques Chirac's inner circle and has plenty of experience in cross-border dealmaking, assets that could help as he charts a new course for Vivendi.

The Hollywood rumor mill is already cranking out scenarios for the fate of Vivendi's crown jewels -- its Hollywood and publishing assets, with combined revenues of $15 billion last year. These include not only good performers such as Universal Studios and Universal Music but also the former cable-TV holdings of USA Networks, which Messier bought last year from Barry Diller for $11 billion.


  One option is to spin off the media properties as a separately listed company that Vivendi would control. But what about Diller? The chairman of shopping company USA Interactive Inc. says he doesn't want his company to buy any of Vivendi's assets. But Diller personally owns a 1.5% stake in Vivendi's TV and film operations.

One script hot on the cocktail circuit: Diller plays a management role in a spun-off entertainment company or gains control in a leveraged buyout. Another potential buyer is Germany's Bertelsmann, which has $7 billion in cash it can use in acquisitions. "Bertelsmann has been kicking around Hollywood for years, trying to create their own studio," says a former top studio executive.

Vivendi's European assets also are likely to go. Because of French legal restrictions on foreign ownership of media, pay-TV group Canal+ would probably go to a French company such as Lagardère Media. Vodafone Group PLC CEO Chris Gent is eager to grab Cegetel, a French phone company in which Vivendi holds a 44% stake. "Just selling those two properties would go a long way toward getting the finances in order," says Michael Nathanson, an analyst with Sanford C. Bernstein & Co.


  But getting a good deal for Vivendi shareholders won't be easy. Global markets are depressed to begin with, and Vivendi is in no position to haggle -- especially now that its debt rating is at junk levels. Indeed, Vivendi is in such turmoil that analysts can't even agree on its breakup value, with estimates ranging from $18 billion to as much as $50 billion. That's one reason the new CEO may move cautiously on a sellout.

Fourtou is likely to enjoy strong support from the French majority on Vivendi's board. He's a co-founder of Entreprises et Cité, an exclusive club of 30 French CEOs that includes several current and former Vivendi directors. Of course, the clubby members of France Inc. protected Messier far too long. This time, they'll have to worry more about protecting shareholders than one of their own.

By Carol Matlack in Paris, with Ronald Grover in Los Angeles

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